It’s that time of year again! No, not the holidays. I’m talking about “open enrollment” for your group health insurance. If they haven’t already, your company’s benefits department will be reaching out to provide you with your plan choices for the coming year. Understanding the alphabet soup will be important.
For many, selecting the right medical plan can be cause for consternation, whereas discussing politics over Christmas dinner would bring less angst and anxiety. Most employers will provide you with two or three plan choices commonly comprised of a High Deductible Health Plan (HDHP), a Preferred Provider Organization (PPO), and/or a Health Maintenance Organization (HMO).
These plans each bring their own set of positives and drawbacks, so delving into their characteristics, traditional cost structures, and suitability may provide some insight on what would align best for you and your family.
An important first step is evaluating how often you and your family access the healthcare system. While many factors need to be considered, the frequency of use can be a strong indicator of the healthcare plan that is appropriate for you.
Frequency of Access: LOW
Families that are fairly healthy and don’t anticipate much in the need of medical attention outside of preventive care (which is often covered 100% when using a provider in the plan’s network) might consider the HDHP. In recent years, the HDHP has gained traction in popularity as these plans are typically offered in conjunction with a Health Savings Account (HSA).
HDHP premiums tend to be lower than that of a traditional PPO or HMO though they often carry higher deductibles, co-insurance, and out-of-pocket limits. If your company offers a HDHP and allows you to contribute to an HSA, these tax deductible contributions can be utilized to defray the costs of the higher deductible as well as limit your true out-of-pocket expenses.
Frequency of Access: HIGH
If you are anticipating a higher frequency of medical attention in the coming year, a PPO or HMO could make the most sense. Both PPOs and HMOs are similar in nature in that they each consist of a network of medical providers from which you select whom to receive your health care.
However, a stark contrast between the two plans is flexibility. PPOs offer a broader array of medical provider choices and offer no constraints in your ability to utilize anyone in their network for the agreed upon in-network costs. You are also able to go outside of the network to receive care, though costs will be higher by comparison.
HMOs on the other hand require that you select a Primary Care Physician (PCP), from a much smaller network of providers, who will then coordinate your medical care. The PCP determines necessary medical treatment and refers you to a medical provider or specialist of their choosing.
In most cases, you cannot go out of network for medical care without bearing the full cost of treatment. The sacrifice of forfeiting some control over choosing your medical providers is offset in part by the fact that HMOs typically don’t have annual deductibles and premiums tend to be lower than that of a PPO.
A Conservative Approach
If you are uncertain as to the frequency of access for the coming year and are indifferent as to what medical provider you see, a conservative approach would be to look at the worst case scenario. This would involve simply adding up what your annual premiums will be with your maximum out-of-pocket for each plan. Keep in mind that your maximum out-of-pocket expenses include your deductible, your co-pays, and any co-insurance. This is an all-encompassing figure. Any qualified medical expense exceeding this maximum will be covered by your provider in full. From there, review what is offered in terms of tax-favored health plans that can offset these expenses to obtain a suitable choice.
While there are other health insurance plan options in the marketplace, the aforementioned choices are the most common in today’s landscape. The process of selecting the correct medical plan can be arduous, but focusing on a few specific areas can lead you in the right direction:
- What is my anticipated medical usage for the upcoming year?
- Is my current provider in-network with any of the plan options?
- Is flexibility important when choosing my health care provider(s)?
While predicting your medical future may be impossible, addressing these three items should help you begin the process of selecting the appropriate plan for you and your family. If you have more questions, be sure to speak with your HR representative or benefits specialist who can provide all the details regarding your employer’s plan options.